- Hi everyone, I'm attorney Aiden Durham
with 180 Law Co. in Colorado.
And welcome back to All Up In Yo' Business.
(bright guitar music) (keyboard clicking)
On this episode of All Up In Yo' Business,
we're gonna talk about moving your business
from one state to another.
I'm gonna go over some of the different options
for moving a business from one state to another.
The pros and cons of each, and how you can decide
which option is gonna work best for you and your business.
But first, don't forget to like, subscribe, and share,
and check the description for links
to additional information and resources.
All right, so when it comes to moving your business
from one state to another, if you are relocating yourself,
moving you and your family, you're probably going to wonder,
how do you move your business along with yourself
and your house and everything else?
There are a handful of different ways that you can go about
moving your business.
Some of them are easy, not a whole lot involved,
but may not end up with the result that you want.
Versus some other options that might be
a little bit more complicated or more complex,
but will help in the end
give you a better result with your business.
So I'm gonna start with the easiest way
of moving your business.
And I say moving your business because this option
isn't really moving.
What I'm talking about is registering and qualifying
as a foreign entity in the new state.
So if your business is registered in one state,
and you move to a different state, you can register it
as a foreign entity in that second state.
Now, we sometimes need to deal with
foreign entity registration
and foreign entity qualification
if we're doing business in multiple states.
If we're transacting business in a different state
from where our business is registered,
then that second state typically requires
that we qualify to do business in that state.
And the same thing kind of applies if we're moving
or relocating our business or ourselves as well.
So you keep the business registered in the first state
and then you just register it as a foreign entity
in that second state, wherever you're moving to.
Now, I say, this is the easiest way
because it doesn't change anything about your business.
Your business itself isn't changing to a different state,
it's just qualifying and registering
as a entity in the second state.
The forms involved are typically pretty straightforward
and not too expensive.
In Colorado it's maybe 50 bucks
to qualify and register as a foreign entity.
You don't have to get a new EIN,
you don't form a new business,
you don't have to get a new operating agreement
for your LLC, nothing like that.
You're really just registering the one entity
in a second state.
The drawback to this though
is that now we're dealing with two states.
If both states have some kind of annual filing requirement,
which most states do, you have to to worry about
filing those reports in both states.
You'll have double the filing fees.
Depending on where you're moving from and moving to,
you're basically gonna have to do two of everything
that you file with the secretary of state.
I think this option makes most sense
if you're going to have some continuing presence
in the original state.
If you're still going to have some business activities
go on there, or if you're still gonna have a location,
a storefront, an office there,
if you're still gonna have some connection
to that first state, then registering
as a foreign entity in the new state makes sense.
But if you're completely done with that original state
and you're moving yourself and everything associated
with your business to the second state,
then I don't think foreign registration of your LLC
or your corporation makes a whole lot of sense,
because now you're still dealing with that original state
that you really have no connection to.
So I'll tell you, I recently did this.
I relocated myself from Colorado to California last year,
and I took this approach.
My LLC is registered in Colorado
and I registered it as a foreign entity in California.
But the reason I did it this way
is because I still have a business presence in Colorado.
Since I'm not licensed to practice law in California,
I don't want to put out there that I'm a California lawyer.
I'm still a Colorado lawyer, I wanna have a Colorado address
I want to represent myself
as a Colorado-based attorney and law firm.
So since I still have that business presence in Colorado,
I still wanna be registered there.
But since I'm here in California,
I'm technically running the business
and transacting business here in California,
so I needed to register here as a foreign LLC.
But if that's not the case for you,
if you're done with the first state,
completely moving everything to the second state,
then this foreign registration
usually isn't really going to make sense.
So the second option is to dissolve the first company
and form a new one in the new state.
As far as ease goes, this is a little bit more difficult
than registering as a foreign entity,
but it's still a bit easier than the other two options
that I'm going to talk about.
So the process for this would be to dissolve the LLC
or the corporation in the original state.
And then you form a new one
in the state where you're moving to.
Not a whole lot to it.
But the drawback of doing this
is you're creating a whole new business entity.
Everything you did the first time around,
you have to do again for the second one.
So that means, of course,
forming the paperwork to get a new entity set up,
applying for a new EIN because it's a new entity,
drafting a new operating agreement under the new state
of where your business is registered.
All of that you have to do over again.
If you have a credit history, if you have some kind
of history with the business, that basically all goes away
because that existing business is no more
and you're creating a brand new one.
But, compared to the foreign registration,
at least you're not dealing with two states at the same time
that's really the one small benefit of doing it this way.
You're also gonna have to deal with any contracts
that the original entity may have entered into.
If you have service agreements with your clients
or agreements with suppliers or any other thing
that you might've signed a contract under
for the first business,
those aren't really going to be effective anymore
because that first business doesn't exist anymore.
You're creating a whole new brand new entity
that needs to now enter into those contracts.
So sometimes depending on the terms of the contract
we might be able to assign a contract
from the first entity to the new one.
If that's not an option, though,
we might have to terminate a contract
and sign a new one under the new entity.
Again, this depends on the nature
and the terms of the contract.
But just be aware that if you're dissolving
the first company and forming a new one in the second state,
that that's something you're gonna have
to take into consideration,
is how do I handle these contracts
that my previous company is bound to?
And how do I make it so my new company
is a party to those contracts?
The third option is my favorite option,
I think for the most part, it's the best option,
but unfortunately it's not always available.
And this is domestication or conversion of the company.
I say domestication or conversion
because some states use different terminology.
Colorado calls it a conversion, so that's how I refer to it,
a lot of states call it a domestication.
And basically really all it is is changing your business
from being registered in one state
to registered in another state.
We convert it from say, a Colorado LLC to a Nevada LLC.
And that's exactly what it is.
It's converting this one to this one.
So the benefit of this is that
we're not creating a new business like we are
if we dissolve the first business and open a new one.
We don't have to go through those steps
of getting a new EIN or assigning contracts,
or dealing with how do we handle these contracts?
Because for all intents and purposes,
it's really just changing where the business is registered
but everything else stays the same.
Now, the problem with this though
is that not every state permits it.
Some states don't permit conversions or domestications.
And in most situations, the statutes that discuss
this kind of thing are gonna say something like,
"We're cool with it as long as the other state
"is cool with it too."
Colorado's conversion statute says that
a domestic entity can be converted into a foreign entity
or a foreign entity can be converted into a domestic entity
as long as the laws of the original jurisdiction permit it.
So basically you need to make sure
that both states that you're dealing
with will permit this conversion or domestication
depending on what term they use.
In addition to making sure both states allow it,
it's also a little bit more complicated
because typically the statutes are gonna require
some kind of a plan of conversion.
This is a document typically that discusses what's going
to happen in this conversion or domestication process.
How the ownership of the people involved
is going to be affected, if it's going to be affected,
how liabilities and debts are gonna be handled,
all that kind of stuff.
For the most part, typically it kind of boils down to,
everything that was with the first company,
will be with the second company.
But you need to prepare this plan of conversion,
which isn't readily available on
secretary of state websites.
It's not like a form template that you fill out.
Certainly there are examples and templates online
of this plan of conversion.
And this plan of conversion or plan of domestication
doesn't usually need to be registered
or filed with the secretary of state,
it's just for your own internal records.
But in general, if it's permitted, a conversion
or domestication is gonna be the best option,
because you're not starting a new business,
you're just transferring essentially the business
from one state to another.
You don't have to get a new EIN,
you don't have to go through that whole process
of really setting up a new business.
You do typically want to update
or amend your operating agreement though
so it conforms to the state laws of that new state.
And then once you've got that plan of conversion
all taken care of, then you'll file some form
with the state to, usually with both states.
Colorado calls it a statement of conversion,
just some document that lets the first state know,
"Hey, we've converted from a domestic entity here
"to a domestic entity there."
And then you'll file something similar in the second one
saying, "Hey, we were this entity, now we're this entity."
You can also use that tactic
if you wanna actually change the entity type as well.
If you wanna convert your business from an LLC
to a corporation or corporation to an LLC
or something like that, then it's typically a conversion
that we'd be doing along with that move.
So the drawback with the conversion, domestication thing
is number one, not every state's gonna permit it.
Number two, there's a little bit more involved
because you have to prepare that plan of conversion,
and you will have additional filing fees in both states.
But the benefit is that once the conversion or domestication
is done, you don't have to deal with both states.
You only deal with that new state
where your business is now domesticated.
And you don't have to get a new EIN,
you don't have to restart your business's credit history
or entity history.
You don't have to deal with contracts,
because again, it's the same entity,
it's just registered in a different state.
And then finally, the last option is a merger.
This is usually gonna be the best option
if you want those benefits of the conversion,
domestication thing, but if the state doesn't allow it.
So in other words, if you don't wanna have to start
a whole new business, if you want your business
to kind of continue as this new one,
then a merger might be the best option.
And how that works is that you still form a new company,
file documents to set up a new company in the new state.
And then you merge the two,
the existing one and the new one.
And depending on the terms of the merger,
usually it's going to be that everything that existed
with the first company has been basically assumed
by the second company.
So the second company can continue using the EIN,
can assume any contracts or debts,
liabilities, obligations, things like that.
And you don't have to go through that whole process
of really starting brand new with contracts
and new EIN or any of things,
even though you are, for all intents and purposes,
starting a new company.
But through virtue of this merger, it's basically like,
well, we're just taking over this previous one.
So again, just like with the domestication conversion thing,
you need to make sure that both states permit it
because this is a statutory merger.
So it may not be permitted in all states.
Or one state may have specific requirements
that the other state doesn't have,
and you'll need to make sure you're following
the requirements of both states.
Similar to a conversion or domestication,
you're usually gonna have to prepare a plan of merger
that discusses how this merger is gonna go down
and what the result is going to be.
And then you'll typically file some kind of form,
a statement or merger or something like that,
every state calls it something different.
But you'll file a form with the first state
letting them know,
"Hey, this company has merged with this other one."
And you will file a similar form with the new state saying,
"Hey, this company has merged with this new one."
So to sum it all up, the four options, if you are moving
or need to move your business from one state to the other,
number one is foreign entity registration and qualification.
This is gonna be the easiest and best option
in most cases, particularly if you have
a continuing presence or business transactions
in the first state, then foreign qualification
is gonna make the most sense.
Option two is dissolving the first entity
and forming a new one in the new state.
Not a whole lot that goes into it, typically easy enough,
but the drawback is that you're forming a new business
and you got to really start all over again.
Then we've got the merger option where you still
form a new business, but then the two merge and become one.
And then lastly, my favorite,
the preferred option in most cases, in my opinion,
is a conversion or domestication if both states permit it
because that's going to allow you to
continue with the same business, nothing changes
except for the state where it's registered.
That's all for this episode, folks.
Drop a comment below, let me know what you think.
If you are moving your business from one state to the other,
it's always a good idea to talk to an attorney
who is licensed in one or both of those states
to help you determine, number one,
which options might be available to you by statute
and which one is gonna make the most sense for you.
If you are in Colorado or moving your business
from or to Colorado, check the description
for my contact info if you want more help with that.
And lastly, don't forget to check the description
for links to additional information and resources.
I've got some free downloadable guides and checklists
and all kinds of fun stuff for you there.
Thank you all so much for watching.
I'm Aiden Durham, and I'll see you next time.
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